What is a hardware wallet?

A hardware wallet is a small computer with one job: keeping private keysPrivate keyThe secret number that lets you spend your bitcoin. Whoever knows it controls the coins, so it must never be shared. and signing payments with them. The wallet app on your phone or computer prepares a payment and passes it to the device. The device signs it and hands back only the signed payment, so the keys stay inside, even if the computer has a virus.

Its screen matters as much as its chip. The computer it plugs into is treated as untrusted, so the device shows the payment on its own screen and signs nothing until you approve. The protection holds “as long as the user correctly verifies the information that is shown on the device’s screen before approving”, says BIP-388, a standard written for such devices.

When you set one up, it gives you recovery wordsRecovery words (seed phrase)A list of 12, 15, 18, 21 or 24 words that can restore wallet keys. Anyone who has them can take your bitcoin. to write down. If the device is lost or broken, the words restore the same keys in another wallet, so they need the same care as the device. Wallet apps and devices pass payments back and forth in a shared format, the PSBTPSBTA standard format for passing an unsigned or partly signed payment between wallets and signers, until it is fully signed and broadcast., set out in BIP-174.

Marek Palatinus and Pavol Rusnák announced their hardware wallet project on BitcointalkBitcointalkThe Bitcoin forum Satoshi Nakamoto opened in November 2009. Much of Bitcoin’s early history, from the pizza offer to Satoshi’s last post, happened there. in November 2012. In their design, they wrote, “the keys never leave the device and thus cannot be stolen by a virus, malicious code or an attacker”. The device, Trezor, launched in July 2014. Many companies make hardware wallets today.